REALWorld Law

Real estate finance

Imperfect security

If a security interest has not been validly perfected, what is the position of the holder of that security if the borrower becomes insolvent?



Where a security interest is created over a company’s assets (other than land), the security interest must be registered on the PPS register if the security interest is to be enforceable against third parties and in the event of an insolvency. Timing requirements of registration vary depending on the type of security interest which has been granted.

If the security interest is not registered on the PPS register before the latter of six months before either a winding up or an administration began, 20 business days after the security became effective or the date of administration, the security interest may be void as against a liquidator, an administrator of the company, or an administrator of a deed of company arrangement.

Registration of a mortgage over land can be perfected after a borrower becomes insolvent, but if no consideration is given for the grant of the mortgage, payments made to the mortgagee may be clawed back by a liquidator of the mortgagor as being preference payments.